Medicine – Still a Pathway To The 1%!

The following is a guest post by Jim Dahle, a full-time practicing emergency physician who blogs as The White Coat Investor helping doctors and similar professionals get a fair shake on Wall Street.

Although estimates differ, the 1% in America can be defined as an income over $400,000 and/or a net worth over $2 Million. At least one author has suggested that although the top half of the 1% is composed of people who build and sell businesses, investment bankers, corporate executives, real estate developers and a handful of other careers, the bottom half of the 1% still has many physicians, attorneys, upper middle management, and small business people. These folks earn less than $500,000 per year, go to work every day, and pay 25-30% of their income each year in federal income taxes.

Physician incomes are declining and there are many threats to that income looming in the background, but it can still be a pathway to the 1%, at least to the bottom half of it. Here are the steps you need to take as a physician to arrive in the reviled 1% category:

1: Choose a lucrative specialty OR marry another highly-paid professional OR both.

According to a recent Medscape survey public of 2011 physician income, the lowest paid specialty, pediatrics, earns $156,000 per year. The highest paid specialties, radiology, orthopedics, and cardiology, average $315,000 per year. Now I’ve never made $315K per year, but I can assure you it is easier to save $100K per year while earning $315K, than it is while earning $156K. For a mere 2-3 years extra training you can essentially double your income. Don’t want to do that much more training? How about dermatology ($283,000 for 4 years of post-med school training) or emergency medicine ($237,000 for 3 years of residency-exactly the same as Peds)?

“But wait,” you say. “None of those specialties average more than $400K per year! It doesn’t look like ANY doctors are in the 1%. Au contraire mon frere. Those are the averages. I assure you there certainly are plenty of orthopedists and radiologists making more than $400K and plenty of emergency physicians making more than $300K. (I know at least one making > $600K) If you’re willing to work hard, go where these jobs are, and have a decent business sense, you too can earn these salaries.

Plus, physicians are well-educated folks who tend to marry well-educated folks. You know, people like doctors, executives, and other professionals. Multiply just about any of those physician incomes by two and you’re well into the 1% category. Really love kids? Fine, be a pediatrician. But marry an ophthalmologist.

2: Save a significant fraction of your earnings from the beginning.

Doctors already get a late start in the earnings game by virtue of spending their entire 20s (and sometimes half their 30s) in school and training. Despite a heavy debt burden, physicians simply must squirrel away 20-30% of their gross post-residency income away if they hope to hit the 1% mark. But too many doctors, due to a sense of entitlement fueled by years of delayed gratification and a lack of financial education and business sense simply fail to do so. They either immediately grow into their new income, or they fall prey to “financial advisors” who gradually transfer the physicians’ wealth to their own pocket.

3: Minimize your tax burden.

Doctors are absolutely paranoid about taxes. They pile into stupid investments just because someone mentioned there was some kind of a tax break associated with it. Yet most of them don’t know Schedule A from Schedule C nor a 401K from a Roth IRA. A little bit of education goes a long way in this department. Learning about how the tax code really works early on will pay huge dividends. The biggest tax mistake I see many doctors making is searching for bizarre ways to save a few bucks on taxes when they haven’t even maxed out their 401K! Most physicians should also take advantage of a backdoor roth IRA , an HSA (aka a stealth IRA ) and if possible, a defined benefit plan.

4: Develop a sensible, low-cost investment plan.

Just as doctors need to learn about taxes, they should also learn about investing. In this day and age of discount brokers, index funds, and ETFs, it is simply too easy to implement a no-fuss, highly diversified portfolio of stocks, bonds, and alternative asset classes for less than 20 basis points (0.2% per year). Yet many doctors are paying investment costs of 200 basis points a year, or even more. Occasionally they even get sucked into insurance based investments like variable annuities and whole life insurance with even higher hidden costs. In investing, you get what you DON’T pay for. That 2% in investment expenses comes straight off your return, and the difference between someone investing $60,000 a year at 8% for 30 years and doing the same at 6% is over $2 Million dollars! Are you sure your investment adviser is worth $2 Million? You’d be amazed how much money you can save by reading a handful of good $15 books.

5: Avoid financial catastrophes (The Four Ds)

There are several financial catastrophes that can beset any professional, but which seem to strike physicians disproportionately. These include death, disability, divorce, and dead-end jobs. It is absolutely critical to get term life insurance (if someone else depends on your income) and specialty-specific disability insurance as soon as you get out of medical school. Marry the right person, and stay married. Losing half your assets (and then paying alimony and child support for a decade) is a great way to never get ahead financially. If you do get married after you’re already making the big bucks, a pre-nup should be mandatory. Also, keep in mind that professional divorce can be just as costly as personal divorce. Changing jobs is expensive. The loss of income, costs of buying and selling a home, actual moving costs, loss of investment in the practice, malpractice tail, and required buy-outs all take a financial toll. Pick your last job first, don’t go into business with dishonest narcissists, and be sure you have the contracts reviewed by a competent attorney.

Medicine isn’t what it used to be. The days of hassle-free practice leading to riches are long gone. But medicine can still be a rewarding career, intellectually, emotionally AND financially. Follow these steps and you too can be reviled as a “rich doctor.”

Post navigation

24 Comments

1. Don’t be fooled that it requires being a doctor to make it into the 1% (2 million net worth). Plenty of average Joes that make $100K/yearly or less can get into 1%. If you have a job you love that makes decent money, achieving $2mil is possible with good decisions.

2. Don’t become a doctor simply for the money. The amount of schooling is insane and if you don’t love it, you’ll quickly burn out and hate it. Also understand that the life of a doctor is hectic. You may be working 60 hour weeks for a while and the work times can be all over the map.

3. If you are a doctor and choose to marry another doctor, don’t expect to have much of a family life. Doctors work long, hard hours and while the pay is excellent, other areas of your life will suffer. It’s probably best to not have children because someone else will be raising them most of the time (ie: nannies, your parents, etc.)

1. I don’t think the intent of the post is that being a doctor is the only way to be in the 1%. The richest people in the world are not doctors.
2. I agree, but if you love people and love science and love money, then becoming a doctor is a great career path
3. Not necessarily true. My wife is a doctor and works 20 hours a week, but makes more than most people who work 60 hours.

Depends on the speciality. My wife is an emergency physician so she does shift work. She chooses to work 2 shifts a week (10 hour shifts) and emergency physicians are never on-call so once she leaves the hospital, she’s done with work for the day. If she wanted to work 1 shift a week, she could do it too. Dermatology offers that flexibility. If you have your own practice, you could work less hours. There are a lot of flex-work options depending on which speciality you choose as a physician.

That is an interesting perspective. I never really thought of what it took to be in the 1% but I can see easily how many could be in the 1% income wise but never make it to the 1% asset side. Do you think that happens often?

I know a few doctors…it is true they can obtain huge incomes if they are dedicated and good at their specialty. I just don’t know many that don’t have 6-figures plus of student loan debt. To me, that kills it (unless of course, you love medicine and helping people and it’s not solely about the money). I did engineering and luckily made it thru grad school with no debt (I realize I was very fortunate). It was a big headstart for me on my path!

Reality Bites! Becoming a doctor in my opinion is not full gear on income generation, it’s more on vocation, self worth and love of fellowmen. Usually doctors came from families who are financially able- medicine is such an expensive course. But when they become practicing doctors their rates would surely vary by experience and expertise. Some are high paid due to specialization and expertise while needs to work to reach that higher career level.

We’ve got no desire to be a doctor or make oodles of money each year. However, we do squirrel away 50% of our income and plan to retire quite young. I like having a work/life balance and would rather not spend years in med school, years doing rotating shifts, or work in a super stressful job that often deals with life and death.

True! Being a Doctor is really not an Easy Job. Yes, it does give a great compensation and benefits but a lot of your life’s different sides / aspects as a doctor will be affected – like more time for your own love-ones, you can’t really assure that! If one decides to be a doctor, I hope the main reason is to really help patient not the money that you can get by being one.

I long for critical analysis of why health care costs in US leave the curve when compared to other developed countries. That analysis would surely expose the overpaid medical profession, the stewards of the industry. You get away with your greed because you belong to a protected oligopoly whose consumers have to accept you abusive practices lying down (so to speak).

You know the old saying: You don’t step on superman’s cape, spit into the wind, pull the mask off the ole Lone Ranger or… mess with Doctor Jim.

I’d write the expose on this ripoff myself if I wasn’t afraid of how my doctor might react if I made the case that doctors are ingratiating themselves at the cost of sick people who are in no position to negotiate price even if they had the slightest idea what that price is.

The internet is replete with undeniable facts (WHO etc) that point to the excessive incomes of US doctors. Throughout the 1980s and 90s the AMA falsely predicted a glut of doctors and used those lies to successfully (1990s) lobby Congress to limit the number of residency positions and thereby curtailed the number of medical school positions. Now we face a shortage of primary care doctors – you know the one’s who don’t make it into you 1% club. The AMA has persisted in requiring fully qualified foreign doctors to complete residency programs before they can practice in US , doctors have drug their feet for 40 years on digitalizing health care records just to avoid oversight. Now they have managed to flood the market with highly paid specialists when primary care physicians are desperately needed. with the fee-for-service system they have over-medicated, over-tested and over-doctored patients to maintain six figure incomes, etc, etc.

What profession controls both the supply and demand of its services?

We need to put doctors on salary, train more doctors and physician assistants and move to a single payer system asap.

That said, it is painfully obvious that you yourself are living in the 1980’s or 90’s. The healthcare landscape has drastically changed. Many doctors now are part of integrated health systems and if they’re not, they will be. That has been the trend over the past decade. That said, many physicians are already salaried.

Secondly, you may have noticed a trend in pharmacies called minute clinics or walk-in clinics. About 100 years ago, you’d have to go to a hospital to find out if you were pregnant. Today, you can pee on a stick. That said, primary care physicians are no longer needed to diagnose and cure common illnesses. With the advancement of science, we know how to look for, diagnose, and treat these diseases. These clinics are staffed by less paid nurse practicitoners who do most of what a primary care physician used to do.

So there isn’t a shortage of primary care doctors…just a reduced demand for them…and rightly so.

Lastly, assuming what you said is true, outside of controlling the supply of doctors, how are doctors controlling the supply of patients? That wasn’t clear.

With respect to controlling demand for services (not supply of patients) I’m referring to medical practices that encourage excessive “doctoring”, things like questionable elective surgery, referring patients for marginally justified treatments such as MRI scans, knee surgery,etc. especially when physician may have financial interest in facilities. In fact, many medical economists argue that increasing the supply of doctors will cost society more because while prices will fall doctors will respond by simply increasing throughput.

My main point was that the competitive forces of supply demand do not exist in medicine or in setting physician incomes. It’s a self-regulated industry and heavily influenced by monied interests.

That’s a topic unto itself. Lets quit circling the wagons and get back to the issue at hand: “Ethics” and the title of the blog I responded to: “medicine-physician-doctor-a-pathway-to-the-1-percent”. I found the substance of that piece to be shameful.

I simply cannot understand how doctor can justify their exorbitant incomes in view of the fact that almost all developed countries provide equal or better health care for nearly “all” of their citizens, for less than half the cost while providing more visits to their primary care physicians, more physicians per capita, more hospital beds per capita, employing an equal number of nurses (per capita), while their patients live longer and smoke more (there is less obesity)? (source: WHO).

So what justifies being in the 1%?

Student loans? Please. The average in state BS degree sets students back $40,000. I seriously doubt those students would turn down three times that amount (approx average med student debt) if they could earn three times that amount straight out of school. Frankly I favor making med school free just to take that silly argument off the table.

Blame the lawyers? That’s fashionable but not a significant factor. Easy sell to public as everyone hates lawyers.Remember we’re talking net not gross income.

And, I seriously doubt med school is more difficult than a graduate or post graduate Phd level education in engineering, physics, chemistry, etc. These students also incur huge student loans obligations. However, if they could expect to earn anywhere near the average starting incomes of the average GP let alone the average specialist there would be a flood of new students entering their field, along with more immigrants from abroad and more school capacity dedicated to training. Remember, medicine is probably the only field which all but guarantees your in the upper 2% simply for getting good grades.

No, doctors earn what they earn because they operate in a largely self-regulated environment that restricts entry, provides no price transparency and exhibits what economists call a vertical demand curve, i.e. patient will pay anything to be healed.

Its actually called an inelastic demand curve or the price elasticity of demand, but your point is made.

You make a blanket statement that “referring patients for marginally justified treatments” as if all general practitioners have a financial interest in referring patients. That’s simply not the case and factually incorrect. Most GPs refer patients to protect themselves from a lawsuit. If you don’t agree, talk to a doctor.

That said, medical school is not easy. Residency is not easy. The boards are not easy. Spending 2 years to get a PhD with no residency or board exams is much easier..not in content, but in the time spent training.

That brings me to how the salaries are justified. Doctors aren’t making patients sick on purpose. They’re not poisoning their food. They treat the demand of patients that walk through their door. The supply of doctors is dictated by the demand. Since medical school is difficult, residency is difficult and board exams are no walk in the park, many people don’t choose to go into medicine. PhDs in physics or chemistry go into these field because they like them…not because they’re forced to because there aren’t enough medical school seats to accomodate them.

Thank you for your constructive, although somewhat critical comment, mostly criticizing the state of the US health care system. I assure you that I stand right beside you in many of the criticisms you make. This blog focuses on helping people arrive at “the 1%” by hardwork and smart decisions. This guest post explains that physicians can still get there, despite increasing educational costs and decreasing income, by being wise with their finances. It certainly isn’t about how to fix our current health care mess. Let me respond to a few of your points that I do disagree with.

1) Putting doctors on salary- I’ve worked with many salaried doctors- residents, military physicians, and hospital employees. The biggest problem with a salaried doctor is that he makes the same amount of money no matter how much work he does. What’s the incentive? To do less work. Yes, that lowers costs, but there is an obvious side effect- it’s like pulling teeth to get someone to admit one more patient to the hospital, do one more colonoscopy or procedure, or come in to the ED to see someone at 3 am that really needs their expertise. I find it far more pleasant to work with a salaried doctor.

2) Doctors aren’t dragging their feet on EMR/EHRs in order to avoid oversight. They drag their feet because the systems are so crappy that instead of speeding us up, they slow us down. They are gradually improving and I’m confident in 10-15 more years, they may actually INCREASE our productivity. A national EMR would be wonderful, but brings about obvious privacy concerns.

3) The AMA isn’t “flooding the market” with specialists. The increased ratio of specialists to generalists is a result of each individual doctor looking at the probable lifestyle and income he will get during his career, as well as his interests. A student with $400K of school debt literally cannot afford to be a pediatrician, even if he wanted to. Every ophthalmology and dermatology residency spot in the program fills. Only something like 80-90% of family practice spots fill. We have the residency spots already, but students don’t want them presumably because the work sucks and the pay sucks, at least relative to their other interests. Perhaps if people and insurers were willing to pay as much for cerebral work as for procedures it wouldn’t be like this. People don’t balk at dropping $400 for an appendectomy, but they don’t want to pay their $10 co-pay at the doctor’s office. Both visits take the same amount of physician time. It’s ridiculous how little I get paid to work up a septic granny, call all her family members and her four doctors. It’s also ridiculous how much I get paid to suture a 2 cm laceration, in far less time. Our health care system has problems, there’s no doubt about it. But the true solutions involved increased price transparency and required cost sharing. Too many patients don’t feel the economic ramifications of their health care consumption decisions. And they’re not given the data to make them properly in the first place.

4) I’m not sure why you think I need some training in ethics based on reading the above post. You might be surprised to know that I work for free about 20% of the time, far more than the vast majority of physicians. I treat everyone without regard to their ability to pay, by law and by oath. I do believe physicians should have an income appropriate for their intelligence, years of education and training, business savvy, and the fact that they literally hold patients’ lives in their hands. If you set physician salaries at $50K a year, I don’t think you’d like the results as intelligent, talented, hard-working people opted instead for careers in business, finance, law, accounting, engineering etc.

At the end of paragraph one that should read “non-salaried” not salaried.

Also note that physician salaries are very small percentage of our health care costs. I believe 8% was the figure I saw last. Even if doctors made half what they make, you’re still looking at 96% of what we’re paying now.

And I agree doctor’s incomes only amount to about 8% of America’s total medical bill. But I also think that medicine, like politics, can become wasteful and inefficient when its leadership becomes enamored with making money.

I’m also not sure there is a strong correlation between the innate professional capabilities of those who yearn to be in the upper 1% income strata and those who yearn to heal their fellow human beings. In America, income is a proxy for status. And neither driver is good for medicine.

Also, every profession restricts entry. Nobody can just become a teacher or lawyer without passing the steps, for example.

Finally, I kindly ask you to complete the med-school prerequisites, get an 85 percentile score on the MCAT to get into a med school, do the 4 years of medical school, then the 3-7 years of easy residency. Then tell us all how your 80-150 dollars/hour job is easy money. (Average salaries for primary care and ER, the better-paid specialties are more competitive and very difficult to get accepted to those residencies)

I know quite a few people who earn salaries that enter the lower reaches of the dreaded 1%. Without exception none of them “yearn to be in the 1%.” Most want to be “comfortable” and be able to afford retirement, put their kids through college, and pay off the mortgage. Yes, there are ridiculously rich people out there, but they’re not the couples earning $250-500K a year.

I don’t think wastefulness is necessarily correlated with a desire for high income, particularly in health care. I think it is more correlated with increasing levels of bureaucracy. Many doctors are going to “cash only” practices. They’re able to charge patients less because they don’t have to pay for coding and billing (totals about 8% of my practice’s income) and can hire fewer staff and spend less time documenting. They also have the benefit that all of their patients pay them, so they don’t have to overcharge the privately insured in order to accept Medicaid or self-pay patients.

I’m also flattered that you think doctors lead health care. That’s very kind of you. Most of us don’t feel that way with all the changes in medicine over the last 20 years. It feels much more like hospital, drug company, and insurance company CEOs are in charge. We’re responsible for ordering many of the tests and drugs that run up the bills, it is true, but between demanding, impatient patients and their attorneys, and the lack of cost transparency, we’re not entirely at fault.

It sparks my curiousity a bit to see you on this blog. You seem so against anyone “yearning to be in the 1%”, but that’s kind of the point of this particular blog. “I’m in the 1% and you can be too” seems to be the theme here.

You make many good points. And you are correct, my reality is warped. It’s warped by the fact that the typical US family health insurance policy costs $1,2000/yr plus copays and that millions have no coverage at all. That’s twice what I’d pay in most any other developed country. So I know something is amiss. I would be upset if any public service I pay for was this messed up.

So when I see the AMA oppose single-payer or lobby Congress in 1994 to reduce residency programs knowing full well there was a tsunami of aging boomers and retiring doctors headed our way, or well healed physicians focusing on wealth maximizing strategies rather than pulling together to fix this mess – it bothers me.

I’m done. Thanks for putting up with me. You’ve been good sports and made some excellent points.

FYI, you’re paying that much because state government mandate minimum coverage, including acupuncture and chiropractic services for example, both of which I don’t want or need, but am forced to pay for because state governments make citizens pay for it. State minimums also prohibit me from shopping for insurance from another state.

If you remove government from the healthcare system, insurance policies won’t cost $12,000.